On Tuesday, the company got bad news from two more corners of the market: credit rating agency Fitch Ratings predicted that Samsung’s global smartphone position would erode further, while another analyst slashed his price target for Samsung’s shares while calling for the company to “react now before it’s too late.”

Behind both downbeat diagnoses lies the rapid rise of low-cost Chinese handset makers — a very real threat that some analysts dismissed as a distant prospect as recently as the beginning of the year.

Advertisement

On Tuesday, Nitin Soni, a Singapore-based director of corporate ratings at Fitch, predicted that Samsung’s global share of smartphone shipments would fall to 25% next year, from 31% last year.

As Chinese companies like Xiaomi, Lenovo and Huawei make cheaper and cheaper products that meet most consumers’ needs, Soni warned that Samsung had lost its edge with consumers. He added that innovations like wearable devices and curved screens – two of Samsung’s recent tricks–are “unlikely to change the trend.”

Meanwhile, Mark Newman, an analyst for Bernstein Research in Hong Kong, slashed his Samsung price target for the second time this year, arguing in a note Tuesday that the company needs to execute “a drastic change in smartphone strategy.”

Newman, a former Samsung employee and widely-read analyst who has been among the more bullish company watchers, wrote in his note that the company’s “disastrous set of results” last month was a “game changer” for the company, which needs to wake up to the idea “that protecting margins in the low-end is fruitless.”

The analyses sustain a drumbeat of recent reports that have underscored the crisis for Samsung, which as the world’s biggest smartphone maker in the global market for low- and mid-end devices, stands to lose the most from the advance of these Chinese companies.

Earlier this month, numbers from two data providers showed Samsung losing its perch atop the mobile phone sales charts in China and India – countries that together are expected to account for more than 60% of growth in smartphone shipment volumes, according to Fitch.

Samsung declined to comment on the two reports.

For Newman, he doesn’t expect the pain for Samsung’s mobile division to abate any time soon, with the worst of the worst coming in the first half of 2015 — if Samsung plays its cards right.

The problem, Newman says, is that the company got greedy with trying to protect its profit margins on low-end smartphones — even amid an onslaught of cheap Chinese lookalikes. By selling its smartphones for far more than its rivals, Samsung was left with a glut of smartphones on its shelves at the end of the second quarter — causing the company to take a big earnings hit in its earnings report, which showed net profits dropping 20% from the same period a year earlier.

“They’ve got to offer more and charge less on low-end smartphones, which is exactly what the Chinese are doing, and if they don’t, the Chinese are going to keep taking share away from them,” Newman said in an interview.

He calculates that the company’s smartphone margins — which Samsung doesn’t disclose — likely peaked at about 25% in the first quarter of 2013, shortly after the release of the Galaxy Note 2 smartphone-tablet hybrid.

Since then, Newman estimates, smartphone margins have fallen to about 19%, and are on track to drop to 15% next year.

But Newman says Samsung remains a formidable player, particularly if it chooses to take its Chinese rivals head on.

“Samsung has got so much firepower, and such a cost and scale advantage against the Chinese companies — who are tiny in comparison — that if they become aggressive again, they can cause a lot of problems for them,” Newman argues. “A lot of them won’t be able to survive if Samsung wants to turn the screws.”

Newman cut the price target for the stock to 1,650,000 Korean won (US$1,600) from 2,000,000 Korean won. Samsung shares, which had closed at a four-month low on Friday before recovering Monday, slipped 0.3% on Tuesday to 1,266,000 won. It’s down 7.9% so far in 2014.